Saturday, 5 March 2011

Can Coalition defend the "astonishing attack on savers" in its welfare reform Bill?

Labour will challenge the government next week to drop new rules in its welfare reform bill which will penalise savers and remove 400,000 middle-income families from receiving any working family tax credits if they have household savings of £16,000, shadow welfare minister Stephen Timms told a Fabian Society Eastern region conference held in Cambridge today

Timms reiterated Labour’s support for the principle behind universal credit as a good idea, but said that whether this would work depended on central details which the Bill had entirely ducked.

“The Bill was delayed for several weeks, and it was rumoured that it might be pushed back several weeks more. You can see why they might have done that, as it clearly isn’t finished”, he said, setting out that several major questions about how the reform would work were still missing despite the Bill's publication ahead of next week's second reading debate.

Yet Timms focused his challenge on one aspect of the reform package which was in the bill.

“Where we do know the details, Conservative and Liberal Democrat backbenchers are soon going to wish we didn’t”, Timms suggested, challenging the government to remove an “astonishing attack on savings” from the Bill which could exclude 400,000 middle-income families from being able to claim tax credits simply because they had managed to save.

The rule that £16,000 on savings made people ineligible for financial support had previously applied only to out-of-work benefits. Applying this to in-work benefits, such as tax credits for the first time, would see many people lose out.

So people could lose £5000 in tax credits, as a punishment for having managed to put £16,000 in the bank - and they could potentially lose a lot more if childcare support is also cut off by this new rule.

The question I will want to ask next week is “What does the government have against savings? Why should people on modest incomes be punished for saving, for example for a deposit for a house, which will often require . Others will be trying to save to contribute to the massively increased costs of university”, he said.

Timms cited analysis released by the Social Market Foundation last month which had calculated that as many as 400,000 families could lose all of their entitlements to tax credits because of the new rule to exclude those with savings above the ceiling, and that a further 200,000 families with savings of between £6000 and £16,000 faced the prospect of being penalised by the loss of some tax credits.

Timms said Labour would "be battling to modify the Bill over the next 3 months in committee", suggesting this could be an issue on which both the government and its backbenchers in both Coalition parties could find it hard to defend the exclusion of families with savings from tax credits as being fair.

How childcare support would work was an important omission, said Timms. Currently parents needed to work at least 16 hours a week to qualify. The Coalition was proposing to extend this, so as to incentivise people to work even if it was a smaller number of hours, but planned to do so by much wideneing the group of potential recipients without any additional funding. Those currently receiving childcare support would therefore have to meet a much greater share of the costs themselves, and this could particularly make it difficult for lone parents to work.

"I fear the government is heading for a train wreck here", said Timms.

“How are self-employed people, who are not in PAYE, going to have their universal credit calculated?”. The Bill did not address this.

“We have no idea who is going to be entitled to free school meals”, because the traditional criteria would disappear as in-work and out-of-work benefits were merged. The Bill was silent on this question.

These were just a few of the “enormous gaps in the edifice” of the welfare reform bill.

“How can we debate this new system when these key elements are simply unknown”, he asked.